Essentials of Strategic Management, 3/e
Charles W.L. Hill | Gareth R. Jones
Chapter 1
The Strategy
Making Process
© 2012 South-Western, a part of Cengage Learning
What is Strategy?
 Strategy

A set of actions that managers take to
increase their company’s performance relative
to industry rivals.
© 2012 South-Western, a part of Cengage Learning
Successful Strategy = Competitive
Advantage
 A strategy is implemented to create a competitive
advantage over other companies
 A company is said to have a competitive advantage
when its profitability is greater than the average
profitability for all firms in the industry
 A competitive advantage is considered sustained
when it is maintained for several years
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Strategic Managers
General Managers
 Bear responsibility for overall performance
Functional Managers
 Supervise a particular function (task, activity,
or operation)
© 2012 South-Western, a part of Cengage Learning
Strategic Managers
 In multidivisional companies:



Corporate Managers oversee strategy for
whole company
Business Managers lead the strategy for their
self-contained division
Functional Managers are responsible for one
organizational activity
© 2012 South-Western, a part of Cengage Learning
Strategy Making Process
 Select the corporate mission statement and
major goals
 Analyze the external competitive environment
to identify strategic opportunities and threats
in the operating environment
 Analyze the internal competitive environment
to pinpoint the strengths and weaknesses of
the organization
© 2012 South-Western, a part of Cengage Learning
Strategy Making Process (cont’d)
 Select the strategy- contingent upon findings
in steps 1, 2, 3
 Implement the strategy at every level of the
company
 The feedback loop helps managers evaluate
the success of the strategy. Strategic
planning is ongoing.
© 2012 South-Western, a part of Cengage Learning
Pitfalls of Planning
 The formal planning model does not consider:



The unpredictability of the real world
The role of lower-level managers
That success is often unplanned or
serendipitous
© 2012 South-Western, a part of Cengage Learning
Planning for the Unplanned
 Emergent Strategy


The unplanned responses to unforeseen
circumstances
Autonomous actions are actions taken by
lower-level managers to formulate new
strategies and persuade top managers to alter
strategic priorities
© 2012 South-Western, a part of Cengage Learning
Strategic Planning in Practice
 It is important to plan for the future competitive
environment
 Scenario Planning
Formulating plans that are based on “what if”
scenarios about the future
 Decentralized Planning
Incorporating all managers in planning, not just
the top level managers
 Strategic Intent
Building new resources and capabilities to create
and exploit future opportunities
© 2012 South-Western, a part of Cengage Learning
Cognitive Bias
 Systemic errors in human decision making
that arise from the way people process
information
 It has a tendency to fall back on rule of
thumb, which leads to systematic errors
 Cognitive biases lead managers to make bad
decisions, even with good information
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Cognitive Biases
 The prior hypothesis bias
 Escalating commitment
 Reasoning by analogy
 Representativeness
 Illusion of control
© 2012 South-Western, a part of Cengage Learning
Improving Decision Making
 Devil’s advocacy- the critical analysis of a
plan
 Dialectic Inquiry- the debate between
conflicting plans of action
 The outside view- an evaluation of the project
against prior initiatives
© 2012 South-Western, a part of Cengage Learning
Strategic Leadership
 Leadership skills are important for successful
strategic managers
 A managers key strategic role is to use
knowledge, energy, and enthusiasm to
provide strategic leadership for subordinates
© 2012 South-Western, a part of Cengage Learning
Characteristics of Good
Strategic Leaders
 Vision, Eloquence, and Consistency
 Commitment
 Being Well Informed
 Willingness to Delegate and Empower
 The Astute Use of Power
 Emotional Intelligence
© 2012 South-Western, a part of Cengage Learning